to brexit or not to panic

How is Brexit Affecting the EU Payments Industry?

Ever since 2016, one of the questions many have been
pondering is what does the future hold for the UK. With the invoking of Article
50 in March 2017, the country reaffirmed its decision to abide by the 2016
referendum and leave the EU; with lengthy and extremely troubled negotiations
following immediately and with the UK - at the time of the writing of this
article - still without a clear exit plan.

The
Hard Drop

One of many seismic effects
Brexit has already had was the volatile
exchange rate shift that occurred immediately after Article 50 was invoked
in 2017. Many are considering this to be just a small preview of the
wider impact Brexit will have on both consumers and businesses, including payment service providers.

The words "hard
Brexit" are an ongoing cause for concern in the financial sector. In the
event of a "hard" Brexit, the UK cuts off all ties to the EU
immediately and completely. It would be as if the UK simply stopped existing a
second after the deadline. Investors have for some
time been encouraged to diversify their portfolios, and companies have been
making plans to move headquarters, with Transferwise
the first to announce such an intention publicly.

On
the Move

Moving their HQ to the EU is also on the mind of many acquirers since splitting would incur
significant overhead because it would require dividing scheme submissions
across multiple BINs. Brexit is also expected to force all card machine providers to reclassify machines as international or
inter-regional so users can be aware of all the changes while making payments.
There are also questions regarding the regulatory position of the UK on
interchange caps and card surcharges.

Across
the Border Order

Banks have for some time been scrambling to create solutions for operating across the EU - UK border. These issues include liquidity (from cash concentration to notional pooling), cash management (from receivables to virtual accounts), and payments (FX, SCT, SDD, high value payments and more). While the UK will be able
to register as part of the European Economic Area, there remain many open
questions regarding interchange base cost, which is also expected to
significantly affect merchant pricing.

There is also the issue of
UK banks losing direct access to Euro
Clearing & Settlement Mechanisms and needing to create solutions for
handling affiliates and correspondent banks in the EU. This would inevitably
involve indirect memberships, rerouting transactions, reviews of charging
models, and establishing Nostro setups among many other procedures.

Another issue of note is passporting, which will become
impossible since the UK will no longer be part of the Single Market. And what
about PSD2? While UK banks have spent over 750 million pounds to prepare for
its implementation, post-Brexit they are expected to replace it with the UK
Open Banking initiative.

Another Shade of RTS

UK is set to introduce its
own Regulatory Technical Standard for Strong Customer Authentication in
response to concerns raised by the UK leaving the European Union just as SCA is
being implemented as part of the final stages of PSD2. The UK RTS would be substantially
similar to SCA RTS and would aim to mitigate disruption for all businesses that
have in the past several years already invested considerably in the preparation
for PSD2's September 2019 deadline.

The regulation would allow
businesses to operate effectively in the UK after it leaves the EU in March
2019 and would also bridge a potential gap in the UK regulatory framework
between March and September in the event of a "no-deal" Brexit. The
UK RTS is expected to cover all relevant payments issues including SCA
requirements, permitted exemptions, confidentiality rules, and open and secure
communication.